Chapter Ⅸ Financial Reports



Article 57. Financial reports are the written documents summarizing and reflecting the financial position and operating results of an enterprise, including a balance sheet, an income statement, a statement of changes in financial position (or a cash flow statement ) together with supporting schedules, notes to the financial statements, and explanatory statements on financial condition.



Article 58. A balance sheet is an accounting statement that reflects the financial position of an enterprise at a specific date.



Items of the balance sheet should be grouped according to the categories of assets, liabilities and owners' equity, and shall be shown item by item.



Article 59. An income statement is an accounting statement that reflects the operating results of an enterprise within an accounting period, as well as their distribution.



Items of the income statement should be arranged according to the formation and distribution of profit, and shall be shown item by item.



Items of profit distribution part of the income statement may be shown separately in a statement of profit distribution.



Article 60. A statement of changes in financial position is an accounting statement that reflects comprehensively the sources and application of working capital and its changes during an accounting period.



Items of the statement of changes in financial position are divided into two groups: sources of working capital and application of working capital. The difference between the total sources and total applications is the net increase (or decrease ) of the working capital. Sources of working capital are subdivided into profit sources and other sources; applications of working capital are also subdivided into: profit distribution and other applications, all shall be shown item by item.



An enterprise may also prepare a cash flow statement to reflect the changes in its financial position.



A cash flow statement is an accounting statement that reflects the condition of cash receipts and cash disbursements of an enterprise during a certain accounting period.



Article 61. Financial statements should include comparative financial information for the corresponding previous accounting period, When so required, if the classification and contents of statement items of the previous accounting period are different from that of the current period, such items should be adjusted in conformity with that of the current period.



Article 62. Accounting statements should be prepared from the records of account books, completely recorded and correctly checked and other relative information. It is required that they must be true and correct in figures, complete in contents and issued on time.



Article 63. Consolidated financia1 statements sha1l be prepared by the enterprise (acts as a parent company ) which owns 50% or more of the total capital of the enterprise it invested (acts as subsidiary ) or otherwise owns the right of control over the invested enterprise. Financial statements of an invested enterprise of special line of business not suitable for consolidation, may not be consolidated, but should be submitted together with the consolidated financial statements of the parent company.



Article 64. Notes to the financial statements are explanatory to related items in the financial statement of the enterprise concerned so as to meet the needs to understand the contents of the statements. This should include mainly:



(a) the accounting methods adopted for the current and previous accounting periods;

(b) changes in accounting treatments between the current and prior periods, inc1uding the reasons for, and impact on the financial performance and status of the enterprise of such changes;

(c) description of unusual items;

(d) detailed information relating to major items listed in the accounting statements; and

(e) any other explanations necessary to provide users with a clear view and understanding of the financial statements.
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